We recently published a list of 10 Best Utility Dividend Stocks To Buy. In this article, we are going to take a look at where Duke Energy Corporation (NYSE:DUK) stands against other best utility dividend stocks to buy.
Utilities are typically viewed as defensive investments. Unlike growth stocks, which are often tied to economic cycles, utilities provide essential services that are in constant demand, such as electricity, natural gas, and water. This makes them relatively stable performers during economic downturns. Despite experiencing a challenging year in 2023, the utilities sector is well-positioned for growth in 2024 and beyond.
So far, the utilities sector has been one of the best-performing sectors. There are a few primary factors driving the recent outperformance of the utilities sector. First, the market is anticipating potential interest rate cuts by the Federal Reserve. Given their relatively low-risk profile, utilities are often seen as bond proxies. As bond yields decline, the attractive dividend yields offered by utilities become more compelling.
Second, the growing demand from data centers powering artificial intelligence and cryptocurrency is significantly increasing electricity consumption. The International Energy Agency estimates that electricity usage by these sectors could rise from 460 terawatt-hours in 2022 to over 1,000 terawatt-hours by 2026, rivaling Japan’s total electricity consumption.
Read Also: 8 Best Utilities Stocks to Ride the AI Boom in 2024
Electrification Trends Across Key Sectors
The growth in the electric power industry is also fueled by the ongoing electrification of transportation, buildings, and industry sectors. Within the transportation segment, electricity demand projections vary widely based on EV adoption rates. While estimates range from a 16% to a 36% compound annual growth rate over the next decade, recent developments suggest a potential for higher growth. The increasing affordability of EVs, coupled with government incentives like tax credits, is driving rapid adoption.
In the buildings sector, the transition to electric heat pumps and water heaters in residential and commercial buildings is increasing electrification. Demand within this segment is projected to grow at a rate of approximately 0.5% to 0.9% annually through 2035, with the potential to reach as high as 3,700 terawatt-hours per year.
The industrial sector might not be as fast to electrify as the buildings and transport sector. Demand is forecasted to increase at a rate of 0% to 0.6% annually through 2035, reaching over 1,070 terawatt hours. Given that only 13% of the sector’s energy needs are currently met by electricity, there is significant potential for further electrification to align with decarbonization goals.
The sector’s long-term prospects are even more promising. The global transition from fossil fuels to renewable energy sources is accelerating, and utilities are at the forefront of this shift. In fact, The US Energy Information Administration (EIA) forecasts a significant increase in utility-scale solar installations, with a projected more than doubling to a record-breaking 24 gigawatts (GW) in 2023. This growth is expected to continue in 2024, with an additional 36 GW of solar capacity anticipated. As a result, the renewable energy share of electricity generation is projected to rise from 22% in 2023 to nearly 25% in 2024.
Our Methodology
To compile our list of the best utility dividend stocks, we conducted an analysis of our database, covering over 900 hedge funds as of Q2 2024. Our focus was specifically on dividend-paying utility companies, including diversified utilities, independent power producers, and regulated gas, electric, and water utilities. From this list, we identified the 10 stocks with the highest number of hedge fund investors as of Q2 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Aerial view of a power plant near a lake lit up at night, showing off the company’s expansive electricity generation capabilities.
Duke Energy Corporation (NYSE:DUK)
Number of Hedge Fund Holders: 37
Duke Energy Corporation (NYSE:DUK), a Fortune 150 company headquartered in Charlotte, North Carolina, is a major energy provider in the United States. It supplies electricity to 8.4 million customers across six states and natural gas to 1.7 million customers in five states. Duke Energy Corporation (NYSE:DUK) owns 54,800 megawatts of energy generation capacity.
In the first quarter of 2024, Duke Energy Corporation (NYSE:DUK) exceeded earnings expectations, reporting an EPS of $1.44. This was $0.6 higher than the estimates. Duke Energy Corporation remains optimistic about its future and has reiterated its 2024 earnings guidance of $5.85 to $6.10 per share, alongside a long-term EPS growth target of 5% to 7% through 2028. The company’s growth strategy is further supported by a comprehensive five-year capital investment plan of $73 billion, effective cost recovery systems, and a proven track record of favorable regulatory results.
The company has been consistently distributing dividends to shareholders since 1986 on a quarterly basis. It currently has a forward dividend yield of 3.58%. In July, Duke Energy Corporation (NYSE:DUK) announced a quarterly cash dividend of $1.045 per share, representing a 2% increase from the previous dividend.
As of Q2 2024, Duke Energy Corporation (NYSE:DUK) was held by 37 hedge funds, making it one of the best utility dividend stocks to buy now.
Overall, DUK ranks 7th on our list of best utility dividend stocks to buy. While we acknowledge the potential of DUK as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than DUK but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.